Sterne Agee Managing Director: Switch To Visa Will Benefit Costco

Costco Wholesale Corporation COST came out with better than expected second-quarter results Thursday, declaring an EPS of $1.35, significantly above the $1.05 it reported for the same quarter last year.

The company also recently announced that it has entered a co-brand credit card program agreement with Visa Inc V after ending the deal with American Express Company AXP.

Charles Grom, Sterne Agee managing director, was on CNBC to weigh in on the company's numbers and discuss the deal with Visa.

A Closer Look At Costco

“Costco pays its employees significantly higher than anywhere near Wal-Mart and their retention rates are very strong,” Grom said.

“On the margin, probably getting refocused on the food area in certain parts of their stores could be something to keep an eye on. But we think Costco has got a really entrenched customer and their retention rates are well over 90 percent at this point in time.”

He continued, “And we actually think the upcoming switch to Visa, which is going to happen in March of next year, could actually be a benefit considering there's roughly 750 million U.S. Visa holders versus close to 50 million AmEx holders.”

Related Link: Costco Rallies After Q2 Beat, But Fails At All-Time High

Not A Big Risk

Grom was asked if the disruption that'll occur while Costco changes from AmEx to Visa will confuse customers. He replied, “You can look to Canada, because they recently switched from AmEx to Visa in Canada; and in the past three to four months, Canada has been called out as a top region. So, I think it's a risk, but if you use Canada as a proxy, I don't think it's too big.”